We introduce imperfect monetary policy transparency and strategic wage setting into a macro model where the central bank provides lender of last resort (LOLR) services to banks on top of its standard stabilisation policy. We study how, in the presence of adverse exogenous financial developments,...

Disclosure of monetary policy targets reduces unemployment uncertainty at the expense of higher inflation uncertainty, thereby posing a dilemma for monetary policymakers.

Optimal delegation restores the beneficial effects of non-accommodating monetary policy when the central bank is allowed to be not fully transparent about its response to wages.